“Silly season” for newsies is high summer, when there so little news that “Man Bites Dog!” migrates to page one. In this late-spring week news is plentiful, but a lot of it is silly. Keep sense of humor close by.
The straight news aspects for real estate investors are brief, and pleasant. The surprise drop in long-term interest rates two weeks ago has held its new range, and the twin Institute for Supple Management (ISM ) reports for May rose just above the 55 level, the economy trending better than in the first four months of the year. But the level is not taking off: imports are strong, exports sliding, the combination a GDP minus.
Today the monthly clincher, job data: 217,000 net new jobs. 63,000 in education and health, neither sector sustainable, one funded by debt, the other by theft. Lefties are thrilled to take presidential credit that we now have as many jobs as at the beginning of the recession. SEVEN years ago. Still, good news.
The most important aspect of jobs, by far: income. NSG. Average hourly earnings rose by a nickel last month, 2.1% year-over-year, negative after inflation.
The Fed released its comprehensive Z-1 financial flows, 1st quarter ending. Aggregate mortgage balances continue to fall, the pace slowing, but negative $38 billion in Q1. Write-offs of old trash still account for most of the decline, but every major category from Fannie to Helocs declined. The net worth of U.S. households also hit a new high (trumpets on Left), but not much help to the half of the U.S. without any assets, or the ones they have under water.
Despite the sourpuss attitude in the above, the U.S. economy is gradually creeping ahead and recovery may just be very, very long. We are in better shape by far than any other major region around the world.
Mr. Obama had his most peculiar week in office. Isolation makes most of us odd (or odder, see Bergdahl). The EPA announced long-awaited CO2 limits on power plants, the president running around Congress to get it done. But the limits are why-bother timid: here in Colorado we were already on 2030 track, and even coal states barely peeped. L’affaire Bergdahl: worth doing, quietly and apologetically for a screw-loose AWOL; the grandstanding was stupid, running around Congress again, stupider. Immediately after the president fled to Europe and asked for new support for eastern NATO. One billion dollars. ONE. An accounting error.
Europe understands these challenges to leadership, and misunderstanding by critics. Aside from U.S. job data, this week’s most-anticipated global economic event: the European Central Bank (ECB) at last to rescue Europe. Mario Draghi had created high expectations, and every trader was glued to screens Thursday morning, alert to big stuff. Instead a fizzle in a fog of words. Embarrassing. Markets all over the world just sat there for hours, dumbfounded at pretentious thumb-twiddling.
In defense of the ECB, Europe’s predicament has always been beyond central bank repair (which a brave leader would say). The euro is a disaster made worse by predatory German behavior, insisting on its right to export to the others 3% of its GDP, loan them the money to pay the bills, and then insist on repayment in euro-gelt.
If you feel troubled by US politics, consider France. Hollande’s socialists last week came in third — 18% — in French Euro-parliament voting. BNP Paribas has been caught red-handed laundering terrorist cash in huge volume, a $10 billion U.S. fine and demand for executive resignation pending. Hollande is outraged. He has used the D-Day anniversary to explain to all that Vladimir Putin is misunderstood and a fine fellow. He is also a customer. France refuses to cancel Russian orders for two helicopter carriers, worth about $1.6 billion. These two tubs are of no strategic importance, but France could pull them into what’s left of its navy. Silly me — neither France nor any in Western Europe are willing to spend for self-defense.
Back to reality. Markets are too quiet. The principal force holding down US rates is trouble elsewhere, and growing strength here can overwhelm the external.
10-year T-note, 12 months back. Note break of 2.47% two weeks ago, which should have presaged a deeper move…click on charts to enlarge.
…and did not. Chart is last 90 days. We can take some comfort in holding 2.60%, the bottom of the old range, but it’s thin comfort.
A specific, measurable wealth effect is Mortgage Equity Withdrawal. As above, some of the continuing decline in mortgage balances is writeoffs, but MEW contribution to disposable income is WAY short of normal. Should be positive 2%-4% in recovery cycle, instead negative 2%. Huge drag.